Singapore Air is Closely Watching Virgin Australia Developments

Angus Whitley and Kyunghee Park, Bloomberg

- May 13, 2016 5:00 pm

Skift Take

Singapore Airlines already owns low-cost carriers that serve China and India, its fastest-growing markets. Still, the carrier must decide if the much smaller Australian market is worth more investment than the giant Chinese and India markets.

— Dan Peltier

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Singapore Airlines Ltd. said it’s “closely” monitoring developments at Virgin Australia Holdings Ltd. after the carrier’s biggest shareholder Air New Zealand Ltd. said it may sell its stake.

Virgin Australia is almost equally owned by Air New Zealand, Etihad Airways PJSC and Singapore Air. Air New Zealand has said it’s considering an exit, triggering speculation Singapore Air may snap up the stake to stop an unwelcome foreign airline muscling in.

“We are watching closely what is going on,” Singapore Air Chief Executive Officer Goh Choon Phong said at a press conference in Singapore Friday. “The Australian market is very important.”

Etihad hasn’t publicly said how it views potential changes among Virgin Australia’s largest stakeholders and Air New Zealand hasn’t commented on its stake since saying on March 30 it might put it up for sale. The carrier’s 26 percent holding is worth about A$252 million ($184 million) at current prices.

The bigger question is whether the stock is worth buying after years of meager returns. While a purchase could lock out a foreign competitor, injecting more funds would drain cash from Singapore Air’s faster-growing markets like India and China. Virgin Australia, dominated at home by Qantas Airways Ltd., earlier this year had to borrow money from its major investors to see it through a balance sheet review.

At Friday’s press conference, Goh described Virgin Australia as “commercially very important,” partly because the Brisbane-based carrier can reach remote parts of Australia more easily than Singapore Air. Virgin Australia is the nation’s second-largest carrier. Qantas is the biggest.

“We are happy with our stake currently,” he said. “So we don’t see that being diluted, as in our interest in Virgin Australia. Let me put it very clearly: I don’t mean interest like in stake, but our interest in commercial cooperation.”

Virgin stock climbed as much as 3.6 percent after Goh’s comments, and closed trading unchanged at 27.5 Australian cents in Sydney. That gives the airline a market value of A$970 million.

Goh said Singapore Air isn’t in talks with other shareholders such as Etihad about Air New Zealand’s potential exit.

Richard Branson set up Virgin Australia in 1999 with a $10 million equity investment from Virgin Group as a budget carrier with a single route between Brisbane and Sydney. Air New Zealand, Singapore Air and Etihad ended up taking large stakes in the carrier after a 2013 restructuring.

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net, Angus Whitley in Sydney at awhitley1@bloomberg.net. To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Sam Nagarajan